- Fiscal Policy
- Indexes of Business Conditions
- Consumption Tax Cut and Related Issues
- FY2027 Budget Requests
- FY2027 Tax Reform
- Monetary Policy and Exchange Rate Trends
- Gasoline Subsidy
Fiscal Policy
(In response to a question about the suggestion that Japan is nearing the point where its approach to fiscal policy will have to change, given remarks on the subject from figures such as U.S. Treasury Secretary Bessent) My understanding is that Minister of Finance Katayama has clearly denied that Secretary Bessent made any request for a shift in fiscal policy.
I believe we need to keep our focus squarely on ensuring fiscal sustainability and market confidence, and that with the first signs of a complete exit from deflation now coming into view, this is precisely the time to work to establish an investment-driven economy. In working toward that economy, public-sector investment is also important as a catalyst for private domestic investment, helping to improve its predictability.
In this context, I understand the Basic Policy on Economic and Fiscal Management and Reform 2026, or Basic Policy 2026, to state explicitly that the government will manage public-sector investment spending with a steady reduction in the debt-to-GDP ratio as the principal objective, while tracking interest payments on government bonds, the primary balance, and other indicators. In line with that policy, the public and private sectors should continue working together on investment in crisis management and growth. Continued communication is needed to ensure fiscal sustainability and maintain market confidence.
Indexes of Business Conditions
(In response to a question about the Indexes of Business Conditions for July, in which the coincident index, which reflects current economic conditions, rose from the previous month, suggesting that the current economic expansion may have surpassed the Izanami boom, the longest postwar expansion, and about the suggestion that the overall economic situation has not improved as much as the index indicates based on sluggish personal consumption and similar signs) I believe that the economy's underlying trend remains one of moderate recovery. Looking in particular at the Bank of Japan's Tankan and the Financial Statements Statistics of Corporations by Industry, I see resilience in both companies' assessments of current business conditions and their outlook, despite heightened tensions in the Middle East.
Personal consumption, on the other hand, has yet to regain real strength. Consumers appear to expect that the inflation stemming from the situation in the Middle East may well continue, and I am concerned that this is weighing on consumer sentiment.
When the Special Committee on Management and Labor Policy begins its deliberations in preparation for next year's spring labor-management negotiations and consultations, the business community intends to continue regarding the consideration of base pay increases as standard practice. On the assumption that upside risks to prices may persist, we aim to sustain the strong momentum behind wage increases and hope this will help raise individual incomes. Investment in people, including wage increases, is an essential part of the investment-driven economy Keidanren is working toward, and we intend to continue our efforts in this area.
(In response to a further question about the variation in business sentiment across industries) The economy is "a living organism", so I believe some unevenness in sentiment from one industry to another is unavoidable. What matters is understanding how the recovery is contributing to a better standard of living as the public and working people themselves experience it. Some forecasts point to a widening pay gap between workers in certain industries and those elsewhere in the workforce, and we need to monitor these developments. We will also need to closely monitor whether the energy-related subsidy measures intended to ease price increases are in fact reaching low- and middle-income households effectively.
Consumption Tax Cut and Related Issues
(In response to a question about the idea of raising corporate tax to fund a consumption tax cut) We cannot support it. There are two reasons.
First, companies and business leaders are working to change their own mindsets as part of a joint public-private effort to establish an investment-driven economy and raise the potential growth rate. We strongly encourage support for these efforts.
Second, in terms of international competitiveness, Japan's effective corporate tax rate is already high compared with those of the major advanced economies. My understanding is that Germany currently has the highest such rate, but even Germany has decided to reduce its corporate tax rate, which will leave Japan with the highest effective corporate tax rate of any major advanced economy. Taking international competitiveness into account, we strongly encourage support for improving the investment environment.
(In response to a question about whether it is reasonable to fund a consumption tax cut by raising corporate tax, including through a review of the special tax measures for corporations) The consumption tax is first and foremost an important source of revenue for the social security system. The proposed cut is also limited to two years, and we do not consider a corporate tax increase an appropriate way to fund such a temporary measure. We do recognize that the special tax measures for corporations are the subject of a range of views. Following thorough discussion, we would respect the findings of analyses and assessments of these measures' effectiveness in promoting investment and their use in practice.
(In response to a question about whether a corporate tax increase would be difficult even when the revenue is needed for policies other than a consumption tax cut, given the anticipated spending pressures, including increased defense spending) On defense funding, the corporate sector is already contributing through corporate tax toward the target of defense spending equivalent to 2 percent of GDP. Going forward it will be important to keep spending pressures under proper control, across all areas, not just defense, including through integrated reform of taxation, public finances, and social security. Dialogue between the government and the private sector matters greatly in that process. The business community has no intention of maintaining an inflexible stance against a corporate tax increase. We believe the business community should engage in good-faith discussions on how it should contribute to addressing the various national challenges ahead.
(In response to a further question about what approaches other than a corporate tax increase the government should consider in securing revenue) When the government seeks other sources of funding, expenditure reform based on wise spending is important. We urge the government to remain committed to continuous expenditure reform, with no areas exempt from review, and to ensure that spending is directed to areas where it truly delivers results. This includes the ongoing review of government funds under Japan's version of the Department of Government Efficiency (DOGE).
FY2027 Budget Requests
(In response to a question about what communication is needed to ensure fiscal sustainability and maintain market confidence, given that next fiscal year's budget requests were submitted by the end of last month but the overall total is difficult to determine because some requests do not yet specify amounts) The message has to be communicated persistently and repeatedly. We are aware that the prominence given to the figure of roughly 143 trillion yen at this stage has raised concerns about fiscal sustainability. It is important to note that these requests incorporate into the initial budget spending that had routinely been covered by supplementary budgets.
The key is to communicate these facts clearly while reiterating the position we advocated when Basic Policy 2026 was being drawn up: that fiscal management will be conducted to achieve the principal objective of a steady reduction in the debt-to-GDP ratio.
Throughout the budget formulation process leading up to the end of the year, it is essential to ensure that wise spending delivers tangible results by scrutinizing the effectiveness and efficiency of each ministry's and agency's budget requests. Clear communication on these efforts is also important.
Keidanren aims to establish an investment-driven economy through expanded domestic capital investment, R&D investment, and human capital investment, and in doing so to contribute over the medium to long term to ensuring fiscal sustainability and maintaining market confidence.
FY2027 Tax Reform
(In response to a question about the direction of the Proposal for FY2027 Tax Reform) With a view to achieving the new public-private target of 250 trillion yen in domestic investment in FY2040, the proposal is guided by our conviction that the corporate tax system should be positioned as the foundation supporting an investment-driven economy and should serve to strengthen private companies' capacity for growth.
Specifically, recognizing the importance of reshaping and strengthening business portfolios, the proposal calls for tax measures that help promote business restructuring. It also includes tax measures to support human resource development across the supply chain as a whole, including suppliers. The proposal further states that building a sustainable social security system calls for a unified information infrastructure and for making full use of the My Number identification system, alongside the introduction of benefits tailored to individual income levels.
(In response to a further question about how the proposal was discussed at today's meeting of the Chairman and Vice Chairs) One point raised was the importance of clearly identifying Keidanren's priority areas when the proposal is released. On the effective corporate tax rate, the view was expressed that international competitiveness remains important in creating an attractive investment environment that encourages both domestic private investment and inflows of foreign capital.
Monetary Policy and Exchange Rate Trends
(In response to a question about the current policy rate level and exchange rate trends, with expectations building for a rate hike at the Bank of Japan's next Monetary Policy Meeting) After a prolonged period of historically low interest rates, I believe monetary policy is now in the process of normalization. My understanding is that calls in the markets for the Bank to raise rates have been growing, and the Bank itself has been highlighting upside risks to prices in its communications. Against this backdrop, I expect the Bank to make appropriate decisions after carefully assessing the impact of prices on the economy and people's livelihoods, as well as the impact of exchange rate movements on prices.
On exchange rates, I understand recent movements to reflect the expectations of various market participants, including speculators, regarding the monetary policy outlook in different countries and the resulting movements in interest rates and bond markets. Strong demand for funds driven by rising AI investment is also a factor, in my view.
In this environment, there have recently been signs of a reversal of the yen's weakness. A number of factors are likely at work, including the unwinding of yen carry trades and the closing out of speculative positions, but I welcome the reversal itself. It is difficult to specify what exchange rate level would be desirable, but I will closely monitor the course of monetary policy in both Japan and the United States.
Gasoline Subsidy
(In response to a question about whether extending the gasoline subsidy runs counter to wise spending) I understand it to have been introduced as an emergency measure to cushion the shock and support people's daily lives in the face of the crisis created by heightened tensions in the Middle East. Given its purpose as an emergency measure to cushion sudden price changes, I believe it would be reasonable to specify an end date. At the same time, we should take into account the strain on public finances if the measure remains in place for an extended period, the effect on market confidence, and how Japan compares with other countries.
From this standpoint, what I would emphasize is the need for an exit strategy, and I understand that Prime Minister Takaichi has made clear that she will take a flexible approach to it. Going forward it will be important to set out an exit strategy that takes crude oil price trends into account and avoids any abrupt impact on people's livelihoods.